A Shift from Fixed Income Assets Into Stocks

September 14, 2018

The second week of September came and went without the feared announcement of much higher U.S. tariffs. Even though that danger remains looking ahead, there’s been a return ot riskier assets. Share prices in the Pacific Rim rose 1.2% in Japan today, 1.0% in Hong Kong and Singapore, 1.3% in Indonesia and Taiwan, and 1.4% in South Korea. But Chinese share prices edged down 0.2%. In Europe stocks have risen 0.6% in Greece, 0.4% in France and the U.K., 0.3% in Germany and 0.2% in Spain.

Ten-year sovereign debt yields have increased six basis points in Greece, four basis points in the U.K., and 2 bps in the U.K., Germany, France, and Italy. Yields in Japan and Spain are a basis point firmer.

Gold and oil prices rose 0.3%  and 0.5%.

The dollar is little changed against other majors, showing no net movement relative to the loonie, Aussie dollar or sterling, a 0.1% uptick vis-a-vis the yuan, but dips of 0.1% against the yen, euro and Swiss franc.

Against closely watched emerging market currencies, the dollar fell 0.8% against the ruble, which was buoyed by an unexpected Bank of Russia interest rate hike. The dollar also lost 0.4% vis-a-vis the Brazilian real but has climbed 0.5% versus the Turkish lira and 0.4% against the Indian rupee and South African rand.

Hurricane Florence as a downgraded Category 1 storm with 90 MPH sustained winds made landfall near Wilmington, NC. The big fear is storm surge and rainfall.

The Bank of Russia’s key interest rate was lifted 25 basis points to 7.5%. This was the first change since March. Between September 2017 and March 2018, a series of five reductions totaling 175 basis points had been enacted. A statement from the bank observed that “the balance of risks has further shifted towards proinflationary risks. Main risks stem from highly uncertain external conditions and their impact on financial markets.” It goes on to warn of the possibility of more restraint: “The Bank of Russia will consider the necessity of further increases in the key rate, taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets.”

Peru’s key interest rate was left unchanged at 2.75%. A statement from the Central Reserve Bank of Peru expects real GDP to rise more slowly than aggregate supply and inflation to converge gradually on 2% by late-2018.

Chinese August retail sales, industrial production, fixed asset investment, and unemployment data were released today. On-year sales and output growth of 9.0% and 6.1% exceeded July’s results by a tad, but fixed asset investment in January-August grew 5.3%, down from 5.5% in the first seven months of the year and 6.0% in the first half. The 5.0% jobless rate lay between July’s 5.1% and June’s 4.8%.

Revisions to Japanese industrial production in July were minimal. Output fell 0.2% on month and rose 2.2% on year. The ratio of inventories to shipments increased 0.4% on month and 4.0% on year. Capacity usage dropped 0.6% on month and rose just 0.2% on year.

New Zealand’s manufacturing purchasing managers index rebounded 0.8 points to a 2-month high of 52.0 but remained well below the 2018 high point of 57.1 in April.

Indian WPI inflation slowed to a 4-month low of 4.53% ion August. Food costs posted a greater on-year decline. Fuels subsided to a still-elevated 17.75%, while wholesale costs for manufactured goods picked up slightly.

Labor costs in the euro area inched 0.1 percentage point higher to a 12-month increase of 2.2% in the second quarter. Such had risen 2.1% on year both in the first quarter and in the second quarter of 2017.

Euroland’s seasonally adjusted trade surplus narrowed appreciably to a 2018 low of EUR 12.8 billion in July as exports sank 0.8% on month and imports climbed 1.3%. The year-to-date surplus of EUR 118.5 billion in the unadjusted surplus was 5.4% narrower than a year earlier.

Irish CPI inflation rose 0.1 percentage point to a 16-month high in August. Ireland’s trade surplus of EUR 3.43 billion in July was down from EUR 3.77 billion a year earlier. The first-half surplus had been larger than a year earlier, by contrast.

Finnish and Swedish consumer prices respectively rose 1.3% and 2.0% in the 12 months through July. Each change was 0.1 percentage point smaller than in June.

U.S. import prices were depressed by the largest decline in fuel prices since February 2016 and by the strength of the dollar. There was a 0.6% on-month decline in the import price index, most since January 2016, resulting in a 1.1 percentage point drop in the 12-month rate of increase to 3.7%.

U.S. retail sales data for August were disappointing. Sales only edged up 0.1% on month following a 0.7% increase in July. Still, sales exceeded their year earlier level by 6.6%.

Still ahead: U.S. industrial production.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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